Nick Forgione
The new “One Big Beautiful Bill Act” (OBBBA) has been making headlines for its sweeping tax law changes. While it didn’t alter Roth IRA rules directly, it quietly changed several considerations in the Roth conversion calculation, which impact your taxes; and that’s a big deal for retirement planning.
Why? Because OBBBA introduced and expanded several deductions and tax breaks that depend on your Modified Adjusted Gross Income (MAGI). Roth conversions raise your MAGI, which means a well-intentioned move to shift pre-tax savings into a Roth could unexpectedly shrink your deductions. This could lead to an increase in Medicare premiums down the road, or change how your Social Security benefits are taxed.
The good news? With careful planning, the same rules that create risks can also open doors to meaningful tax savings. That’s the strategic lens we bring to every client conversation — looking not just at the next tax bill, but at the bigger lifetime picture.
A quick refresher on Roth conversions
A Roth conversion moves money from a traditional IRA or other pre-tax account into a Roth IRA. You pay income tax on the amount converted in the year you make the move, but once it’s in the Roth, future growth and withdrawals are tax-free. You also sidestep required minimum distributions (RMDs) in retirement, and Roth accounts can give heirs more flexibility.
The catch? That conversion amount shows up as taxable income. Under OBBBA, that ripple effect can be bigger than many people expect.
What changed under OBBBA
OBBBA brought in several new or expanded deductions tied to your MAGI:
- A senior enhanced standard deduction — an extra $6,000 per person age 65+, phased out between $150,000 and $250,000 married filing joint MAGI.
- A much larger SALT (state and local tax) deduction — up to $40,000, phased out between roughly $500,000 and $600,000 married filing joint MAGI.
- Other MAGI-sensitive deductions, like breaks for overtime pay, tips, or auto loan interest.
These deductions create “bands” where each additional dollar of income — including Roth conversions — can chip away at the tax breaks you’d otherwise keep.
Why this matters for conversions
In the past, deciding how much to convert in a year often came down to filling out your current tax bracket without spilling into a higher one. Now, there’s a new layer: watching where your MAGI sits relative to these deduction phase-outs.
A conversion could:
- Push you far enough into a phase-out that you lose a valuable deduction
- Trigger higher Medicare premiums (via IRMAA) two years later
- Increase the taxable portion of your Social Security benefits
But the flip side is true, too: if you’re already near the top of a phase-out range, converting more might have a smaller incremental cost — and still deliver big long-term benefits.
Two (hypothetical) stories
Sue and John — Planning for a Tax-Efficient Retirement
Sue and John are both in their late 60s, retired, and living comfortably on a mix of Social Security and IRA withdrawals. Their income puts them partway through the phase-out for the new senior deduction — they’re keeping about half of it now.
When we model a $40,000 Roth conversion, their taxable income goes up, and most of their senior deduction disappears. Their tax bill for the year rises by just under $10,000. But here’s why we still recommend it:
- It keeps them under the $250,000 MAGI cap, so they preserve a small slice of the deduction.
- It reduces the size of their traditional IRAs, which will lower future RMDs.
- We anticipate Sue and John will still be in a higher tax bracket later in life due to a lifetime of good saving habits.
- It moves more of their retirement savings into an account that won’t be taxed again.
For Sue and John, the one-year bump in taxes is an intentional trade-off for a smoother, more tax-efficient retirement income picture.
Chris & Dana — Waiting Pays Off
Chris and Dana are in their early 50s, both still working, with a combined income just under $500,000. Thanks to OBBBA, they’re able to claim the full $40,000 SALT deduction; a significant increase from the previous $10,000 cap.
They’re also thinking ahead to retirement in their early 60s, when they’ll have sizable pre-tax accounts. We model a $50,000 Roth conversion today. The result: their income rises into the SALT phase-out range, their deduction shrinks by about $8,500 (from itemized to standard), and their tax bill jumps by about $19,000 for the year.
For them, the smarter play is to wait:
- Holding off preserves the full $40,000 SALT deduction in the near term.
- Future conversions can be timed for retirement, when income will naturally be lower.
- Targeting the years just before RMDs begin will give them more control over their tax brackets.
Here, the win wasn’t in converting right away, but rather in recognizing that the tax benefits of patience outweighed the cost of acting now.
The planning takeaway
Roth conversions can be powerful, but under OBBBA they’ve also become more complicated. The right choice depends on your income, your timing, and how all the moving parts fit together. That’s why it’s not something to do on your own.
At Sachetta, we run the projections, weigh the tradeoffs, and help you decide whether a conversion today (or waiting for a better window) puts you in the strongest position for the long run. If you’re wondering how these rules apply to your retirement plan, let’s talk. We’ll walk you through the options and build a plan that’s right for your road ahead.
Some of the persons and/or names in this article may be fictional and intended to either illustrate a concept and/or protect a subject’s privacy.
Nick Forgione is a Certified Public Accountant and holds a Master's Degree in Accounting from the University of Massachusetts Amherst. Since joining Sachetta in 2022 as an accountant, Nick has worked on projects on both the individual taxation and wealth management side of our company.